A blog by Luke Akehurst about politics, elections, and the Labour Party - With subtitles for the Hard of Left.
Just for the record: all the views expressed here are entirely personal and do not necessarily represent the positions of any organisations I am a member of.

Thursday, August 14, 2008

The politics of an energy Windfall Tax

I'm getting various emails from Compass promoting a Windfall Tax on energy companies. They seem to be still using the Barack Obama branding ("Windfall tax: yes we can!") not having realised that having postured as a radical to win the primaries, their hero is thankfully now triangulating away like an old-school Clintonista.

There are starting to be some sensible names of people whose opinions I take seriously on the policy's supporters list though (Stephen Twigg, Khalid Mahmood, Geoffrey Robinson, Paddy Tipping) so my mind is not entirely closed to the concept.

However, I am still not persuaded on the merits of the policy:- has there been a profit "windfall"? - surely energy prices have gone up partly because it is more expensive to get oil and gas out of the ground/sea as the easy to reach stocks dwindle, not just because of rising demand- how do you stop the companies passing the cost of the tax straight on to customers?- why would we want to decrease the capital reserves of energy companies at the exact moment we are begging them to make capital investment in very expensive new nuclear power stations, clean coal technology and wind, wave and whatever else? Won't they just walk away from the British market muttering that they are running businesses not piggy banks for the Government to raid?- why is profit incurred by energy companies specially worthy of a windfall tax as opposed to profit made by any other kind of company - why this rather than a windfall tax on lawyers at times of heavy litigation, on toy manufacturers at Christmas or a windfall tax on food companies and supermarkets to subsidise food for people hit by rising food prices? (NB to Compass these were not real ideas before you launch campaigns based on them!)

As for the politics of it, I'm afraid that any kind of new tax gives ammo to the Tories. The public won't necessarily clock that it is a tax on businesses, not them, when Cameron's PR people add it to the list of X hundred alleged stealth taxes.

The presentation of the concept has been all wrong and reflects the prejudices of its soft left originators.

They've consistently and consciously chosen to badge it up as a "Windfall Tax", then added almost as an afterthought "for social & environmental justice".

A more politically savvy approach would have been to call loudly for a "Fund to combat fuel poverty" and then quietly added "funded by a one-off Windfall Tax on energy company profits".

This leads me to suspect that the originators of the policy (not I hasten to add the supporters I named above) are motivated less by the thought of helping poorer energy consumers and more by the chance to burnish their radical anti-capitalist credentials by giving business a kicking.

We spent the best part of 20 years persuading the business community and more importantly voters who own shares themselves or through their pension schemes, or work for private sector businesses and depend on their profitability to a) keep their jobs and b) fund public services through all the existing streams of taxation and c) fund their pensions, that Labour was not anti-business. This wasn't just a Blairite campaign - remember John Smith and Margaret Beckett as Kinnock's Treasury team going on the "prawn cocktail offensive" to try to reassure the City. We throw away that hard-won credibility at our peril.

With the economy teetering on the edge of a recession do we want to take an axe to the profitability of any sector in the economy? I thought most Compassites were Keynesians - I don't remember from my first year economics lectures from the now Dr Roger Berry MP that raising taxes was a Keynesian response to economic bad times.

I'm just reading Bernard Donoughue's fantastic memoir of his time as Wilson's Head of Policy at No10, "The Heat of the Kitchen".

Talking about Labour in the 1970s he says:

"The activists were disenchanted with the polls because the polls showed the electorate was disenchanted with them. The left preferred to believe that they alone knew what the electorate wanted, and certainly what was good for the public - which they saw as a strengthened diet of state nationalisation, intervention and controls over industry and the lives of ordinary people, together with fiscal punishment for anyone who had the impertinence to pursue success in the private sector."

I worry that Compass, like their 1970s antecedents, are primarily looking for ways to, as Donoughue puts it, administer "fiscal punishment for anyone who had the impertinence to pursue success in the private sector".

"However, I am still not persuaded on the merits of the policy: - surely energy prices have gone up partly because it is more expensive to get oil and gas out of the ground/sea as the easy to reach stocks dwindle ..."

No. Natural gas exploration & production costs have not risen and in some cases - thanks to new technological developments - they have gone down. The grid paid for itself years decades ago and transmission costs (and charges) are absolutely minute.

Forgive me for being a little bit at base level but isn't this idea a tax on the profits of energy companies to redistibute to those on lower incomes to help pay for this winters energy bills? Money that goes back, hey presto, to the energy companies!

Energy prices rise, and their profits increase. Meanwhile pensioners are told they have to wear an extra jumper to keep warm, by the millionaire head of British Gas whilst his house is nice and toastie. Maybe they should all pop over to his house to stay warm!!

How any socialist cannot be persuaded to the benefits of a windfall tax is beyond me.

Tax them and they'll pass on the costs to the consumers. The best thing to do is put the purchasing and delivery of wholesale & domestic fuel back into public hands. The only way to keep prices down is to remove profit from fuel.

Rich said... "Tax them and they'll pass on the costs to the consumers. The best thing to do is put the purchasing and delivery of wholesale & domestic fuel back into public hands. The only way to keep prices down is to remove profit from fuel."

I, ofcourse agree entirly with that, but we do have a problem with how are we going to nationalise the utilities?Pension plans and share holders will have to be compensated and we simply cannot afford to do that. Should we not bother to compensate them it would leave hard working people who have put money aside for when they retire out on a limb.

I am all for re-nationalisation so if you can figure out a way to compensate the affected people I'm all ears.

Using a Crosland approach we could regulate the utilities better and it is within our budget to do so, but ultimately I agree nationalisation should be the goal, how do we do it?

Ravi, well if I knew that then I would be PM or on the cabinet. These are the challenges of government and it is decisions like these that will give the Labour government a legacy to be proud of..........remember the Welfare State.

I keep hearing Brown talk about the market and how more competition will deliver cheaper prices. Well we have had the market for 25 years now and I'm not seeing cheaper prices. Hasn't Brown heard of cartels and price fixing....?

1. First thing Brown should be doing is finding ways to get households using less energy.

Rich, you know I agree with you on this. We should renationalise the utilities and the railway. I used to think the government could buy up all the small stock holders and eventually have enough controlling shares to nationalise the company. However as I am sure you are aware foreign companies and insurance companies have large percentage shares in the privatised utilities. This makes buying them near nigh impossible. Could we seize control? Yeah we probably could, we are outside the Euro zone so we can't be fined for it, but I can't see any party, Labour or Tory advocating it. Cameron is extremely relaxed about foreign businessmen owning our utilities (see his Jonathan Ross interview). I don't know what UK law states over the nationalisation of any said industry maybe someone better versed in the law might be able to elucidate?

With regards to compensation, the government in 1997 introduced a windfall tax on the privatised utilities. Brown correctly deduced they were bought on the cheap and they made excess profits so he taxed them. I suppose you could look at that as some recompense.But ultimately, as I have conceded, you are completely right these utilities must be brought under state control, but how? We do need to address this point; otherwise the right wing can justly claim we did not plan this take over properly enough.

I am sorry if this sounds a sticking point, but pension plans do need to be compensated. I thought about this whilst I was brushing my teeth this morning: we could reallocate the shares into something else, or maybe give the beneficiaries extra cash over their state pension (taken from the profits made before the industry was renationalised). These are just some of my ideas, I'm sure you lot can think of better ones!!!

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About Me

Labour Party activist since 1988 - firmly on the moderate wing of the party. Member of Labour’s NEC 2010-2012. National Secretary of Labour Students 1995-6. Parliamentary candidate for Aldershot (2001) and Castle Point (2005). Hackney Councillor (Chatham Ward) 2002-2014, Labour Group Chief Whip 2002-09, Chair of Health Scrutiny 2010-2014. Supporter of Europe, NATO/nuclear deterrence, Israel, electoral reform. Guardian reader. Dad. Oxford resident. Unite union member. Employment history as a Labour Party Organiser, Local Government Political Assistant, Director at a Public Affairs company. All views expressed in a personal capacity. The rest will become evident from reading the blog.